Farm Programs

In the early 1930s, when American agriculture was hit hard by drought and economic disaster, Congress enacted legislation to protect farmers against the risks of low crop prices and bad weather, among other things. Since then, Congress has periodically passed legislation to help farmers manage the risks inherent to agriculture.

The U.S. Department of Agriculture (USDA) administers programs to support farm income, assist farmers after disasters, and conserve natural resources. USDA provides this support through agricultural subsidies and insurance, which cost about $20 billion annually.

The federally subsidized crop insurance program, which helps farmers manage the risk inherent in farming, has become one of the most important programs in the farm safety net. In recent years, the government’s costs for the crop insurance program have increased substantially, and these costs have come under scrutiny as the nation’s budgetary pressures have been increasing. In assessing the cost of the federal crop insurance program, key considerations include:

Of the roughly 875,000 farmers participating in the crop insurance program in 2011, 3.9 percent received 32.6 percent of the $7.4 billion provided for premium subsidies (see figure 1).

Figure 1: Percentage of Farmers and Value of Premium Subsidies, by Individual Farmers Receiving Subsidies of $40,000 or Less, or More than $40,000 in 2011

Less than 1 percent of crop insurance participants would have been affected if premium subsidies had been reduced for the highest income participants from 2009 through 2013.[1]Reducing crop insurance subsidies for the highest income participants would have a minimal effect on the program’s actuarial soundness. Participants’ premiums generally corresponded to their likelihood of collecting claims payments, regardless of their income level.

Reducing premium subsidies for revenue policies, the most common type of crop insurance policy, could potentially result in hundreds of millions of dollars in annual budgetary savings with limited costs to individual farmers. Although such reductions would have required farmers to pay more of their premiums, the impact on their average production costs per acre would have been limited, usually less than 2 percent, and often less than 1 percent.

The federal government’s crop insurance costs are substantially higher in areas with higher crop production risks (e.g., drought risk) than in other areas. In higher risk areas, government costs per dollar of crop value for 2005 through 2013 were over two and a half times the costs in other areas.

[1]The highest income participants were those with incomes that exceeded limits in place for farm and conservation programs.

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